3/27 Adjustable-Rate Mortgage - 3/27 ARM


3/27 Adjustable-Rate Mortgage - 3/27 ARM
A type of adjustable-rate mortgage (ARM) frequently offered to subprime borrowers. These mortgages are designed as short-term financing vehicles that give borrowers time to repair their credit until they are able to refinance into a mortgage with more favorable terms.

3/27 mortgages have a three-year fixed-interest-rate period after which the interest rate begins to float based on an index plus a margin (known as the fully indexed interest rate). There is a high probability that the fully indexed interest rate will be substantially higher than the initial three-year fixed interest rate; therefore, to avoid payment shock, the intent of 3/27 mortgage borrowers is to be able to refinance the mortgage before the interest rate begins to adjust.

A common mistake many 3/27 mortgage borrowers make is a failure to recognize the risks associated with such a mortgage. Many times they do not recognize how much their monthly payments may increase if the interest rate changes. Even if they plan on refinancing before the interest rate starts to move, they fail to foresee future economic conditions that might make refinancing difficult.

For example, the rate of home price appreciation and home equity play a very important role in a borrower's ability to refinance at a future date. Many borrowers are too optimistic about the rate of home price appreciation. Additionally, many 3/27 mortgages carry prepayment penalties, which make refinancing very costly.


Investment dictionary. . 2012.

Look at other dictionaries:

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  • Adjustable-rate mortgage — A variable rate mortgage, adjustable rate mortgage (ARM), or tracker mortgage is a mortgage loan with the interest rate on the note periodically adjusted based on an index which reflects the cost to the lender of borrowing on the credit… …   Wikipedia

  • Adjustable-Rate Mortgage - ARM — A type of mortgage in which the interest rate paid on the outstanding balance varies according to a specific benchmark. The initial interest rate is normally fixed for a period of time after which it is reset periodically, often every month. The… …   Investment dictionary

  • Adjustable-Rate Mortgage — (ARM) (Ипотечный кредит с плавающей ставкой ИКПС) ипотечный кредит, у которого процентная ставка переустанавливается через регулярные периоды времени. Переустановка значения ставки производится в соответствии с заранее определенным критерием. Как …   Ипотека. Словарь терминов

  • adjustable rate mortgage — noun : a mortgage having an interest rate which is usually initially lower than that of a fixed rate mortgage but is adjusted periodically according to the cost of funds to the lender abbreviation ARM * * * (abbr.: ARM) n. a mortgage whose rate… …   Useful english dictionary

  • adjustable-rate mortgage — ARM A mortgage in which the interest rate is adjusted at periodic intervals, usually to reflect the prevailing rate of interest in the money markets Borrowers are sometimes protected by a cap, or ceiling, above which the interest rate is not… …   Big dictionary of business and management

  • adjustable-rate mortgage — (ARM) See mortgage …   Black's law dictionary

  • adjustable-rate mortgage — (ARM) See mortgage …   Black's law dictionary


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